Franchises

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Once upon a time Isaac Chalik couldn't tell the difference between carrot and capsicum. He was a mortgage broker, specialising in a different sort of green. Now as a franchise operator, he knows his salads, and their ingredients.

"I thought that food was a very safe industry because people have to keep eating regardless of what else happens in the economy."

Food outlets are the best performing franchises. Sumo Salad now one of the fastest growing businesses in the country.

"There's a risk in every type of business model you choose whether it's to go on your own or under a franchise system, advantages and disadvantages to both. I felt the advantages of a strong franchise far outweighed any potential risks” says Isaac.

Everything from books to food, lawn-mowing, video stores to the post office, all franchises and the industry is now worth $130-billion employing 600,000 people in more than a thousand franchises across the country.

"A franchise is a business that an individual goes into as part of a network of a larger group. So there is a big structure that surrounds the business but it's an individual's own business for the period of the agreement" explains Sarah.

It's like buying a piece of an already made cake. Sarah Stowe from Franchising Australia Magazine has seen thousands turn to franchises this year after the global financial crisis.

"I would never say there is a franchise that is recession proof, but there are franchises that are likely to do well in recession" says Sarah.

But franchises have a history of collapse. Kleenmaid was one of the worst leaving 10,000 people out of pocket. Car repair company Midas was another victim, from 90 stores down to just 30 and $4 million in debt. And after 26 years, Kleins also closed it's doors, leaving 170 shop owners out on a limb.

“People should be very wary of franchising. Franchising is NOT a guarantee of business success" says Frank Zumbo. The real danger is alot of franchisors that over-extended on cheap credit, now that it's time to refinance they'll struggle to re-finance and many franchisors will go out of business."

Frank Zumbo is a critic of franchising, not the industry, but the safe-guards meant to protect small business.

“There is not enough protection. There are gaps in the franchising code of conduct, the relevant laws here, there are gaps in the trade practices act. The ACCC has stood around and not taken on as many cases as they should have, so clearly franchisees lack the suitable protection they really need to deal with rogue franchisors” says Frank.

But if numbers are a gauge of success then some franchises are doing incredibly well.

Australia Post is the biggest franchisor with almost 3,000 outlets. Jim's Group is close behind. While IGA, cleaning company Jani-King and Subway all boast more than 1,000 franchise branches.

But if turn-over is how you judge success then Metcash, the operators of IGA are the most successful earning more than $10-billion. McDonald's Australia and 7-Eleven are also in the billionaires club.

But the fastest growing new player is "Appliance Tagging Services", followed by "Go Gecko Property Sales”, ‘Co-wash mobile’ and ‘Refund Home Loans’. Sumo Salad is the fastest growing food outlet.

“We offer a turn-key solution where we select the site, do the fit out, provide the whole scope of services to get you up and running and for that we charge about $350,000, but depending on the location it might be a little bit more, it might be a little bit less" says Luke.

Luke Baylis and his partner James founded Sumo Salad almost 7 years ago. An idea they adapted from America but trialled themselves before expanding.

"So James and I would go into a store, work 18 hours 7 days a week really for the first two years and work on the processes, work on the systems, refining everything until we knew we had a model that could be replicated" says Luke.

From humble beginnings, Sumo salad now has 78 shops across the country and overseas.

"We supply them with the recipes, with the measurements, the operating manuals, everything they need to be able to run a successful business” adds Luke.

"It's not the fast track to millions of dollars. You have to work extremely hard to make a franchise successful” advises Sarah.

There are any numbers of businesses for sale costing from several thousand to hundreds of thousands to buy in. It all comes down to homework.

“There are some good franchises out there. Unfortunately, sadly, there are some very poor franchises. There are some crooks in the industry that simply rip off franchisees and consumers sometimes. Sadly people have a very rosy view of franchising. They need to be realistic about franchising. Franchisors do fail and it is not as easy as people think” says Frank Zumbo.